On
the 7th of October 2013, Ford celebrated the 100-year anniversary of
its moving assembly line, a revolutionary invention which would change the fate
of mass production for decades to come. As CEO James Hackett rightly suggests
the firm continues to use ‘the spirit of Henry Ford as a benchmark’ for its
future endeavours. We start with Ford as our initial example as it is truly the
embodiment of a multination enterprise, when we look at reasons for firms
becoming multinationals, one of the key driving points is lowering total costs.
By setting up operations close to their foreign consumers firms can eliminate
transportation expenses, allow subsidiaries to handle their products and aid in
responding to changing consumer demands. If we look to Ford this has been
completed on a remarkable scale, the firm has main geographical divisions in
the Americas, Europe, Middle east, and Africa with a VP heading each division.
Global supply chains have become increasingly popular among MNE’s due to
liberalisation in international trade (EU single market, WTO) fuelled by ‘technological
developments which have ‘lowered transportation costs’ (Rugman.,
2011).
By forming subsidiaries in foreign countries such as Ford Australia, MNE’s can
effectively aim to maximise the total profit after tax, as (Lys, 2015)
aptly states tax payments are often the largest expenses of a firm. This is
referred to as ‘tax-effective supply chain management’ (Kim et al,
2018).Hence
this form of offshoring by Ford allows for reduced costs and an ever-increasing
expansion of its business. In response to MNE’s offshoring some governments
have taken to reducing their current rate of corporation tax in order to
attract more firms and stimulate the local economies providing much         needed
forging direct investment ( FDI ), this “tax competition “is reflected in the
recent trend in which MNE’s switch their production to nations with
considerably lower tax rates ( China , Vietnam, India) compared to developed
countries (Agrawal, 2015).Accordingly , the merit for a MNE’s
offshoring are not only the lower production costs but also a tax reduction .
Keeping on the topic of lowering costs as a reason for firms transitioning to
MNE’s, firms regularly practice outsourcing in pursuit of lower supply /labour costs.
The Chinese subsidiary of Hyundai Motors, a South Korean company, receives its
components from a Chinese supplier instead of its factory in Korea for the
lowered cost (Kim, 2011).

Diversification
is protection against ignorance, hence firms become MNE’s to tap into the
growing world market for good and services. Tata Motors Limited is a part of
the Tata Group with a market capitalization of $100BN, it is composed Tata
Steel, Tata Motors, Tata Consultancy Services, Tata Communications, Taj Hotels,
Tata Chemicals, Tata Power, Tata Global Beverages, and Tata Teleservices. The
MNE’s success is due to its use of Outward Foreign Direct Investment ,
essentially the firm would acquire and lease existing production facilities
which would aid its production of new products and goods (Leigh, 2011).During the 60s and
70s there was huge amounts of optimism surrounding product diversification
which was consistent with the massive diversification programs undertaken by a
plethora of firms in the time period .Framed within this view was the linear
premium model (Benito?Osorio,
2012),
the model suggested that the level of diversification is linear and positively
correlated hence the benefits received via high levels of diversification
outweigh the costs therefore most diversified firms outdo their non-diversified
counterparts.  This method of expansion
and growth can also backfire in some cases, if we look to China most observers
will state that Chinese firms are quick to expand into sectors and diversify
their enterprise, fuelled by the robust economic growth and cheap labour costs
these firms quickly grow. There is a plethora of empirical evidence to
accompany this, in 2006, there were more than 100 Chinese automobile producers.
These firms introduced 102 new models in 2005 alone. Currently, only five of
China’s 31 provinces do not have their own assembly plant (Fan et al.,
2008),
now according to western data the minimum efficient scale ( lowest point at
which a firm has its long run costs minimized) for a car production centre is
at the 250,000 mark however due to the aggressive expansion of domestic firms
and rapid diversification of product lines the Chinese average stands at a
measly 150,00 and while demand continues to skyrocket prices have declined by
more than 20% in the 2003 to 2005 time period .

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While
the 60s and 70s saw the dominance of US multinational firms extending their
oligopolistic powers to foreign countries, the 80s and 90s acted as a catalyst
for Japanese and European firms creating a new competitive environment aptly
named the ‘globalisation of competition’ (Kotabe, 1989). This new competition mandated a global
shift in corporate strategy, previously for firms looking to become MNE’s, in
response to increased foreign competition and protecting their home market share,
they would resort to a polycentric approach in which they would recruit the
home talent for their managerial positions; this was the modus operandi. In response to the co-ordination and integration of
operations across nations, several approaches to this global strategy have been
formed such as Kogut’s global value-added chain paradigm and Porter’s global
configuration/co-ordination paradigm (Kotabe, 1989). The key reasons for
these shifts in global stratagem were that firms looking to becomes MNE’s
understood that various corporate functions such as R&D, manufacturing and
marketing needed to be coordinated in a  way
to allow the firms to take advantage of both firm’s competitive advantages and
the comparative advantages of various countries in pursuit of a higher  global market share (Robinson,
1987).The
pursuit of greater global market share and growth, in response to increased
foreign competition , is necessary for firms becoming MNE’s. (Ohmae, 1985) stresses the need
for greater global strategy stating that with the rising disposable incomes in
the ‘Triad Regions ‘ ( United States, Western Europe and Japan where 13 per
cent of world population live and consume some 80 per cent of world production
fuelled by rapid economic growth). If we look towards the Indian Pharmaceutical
industry, it is the largest supplier of low-priced anti-retroviral in the
world, and exports medicines to over 200 countries. Government policies have
helped the country build an excellent manufacturing capability, which helps in
making available essential medicines. The Patent Act of 1970 allowed domestic
firms to manufacture products, which until that time were manufactured only by
foreign firms (Iyer, 2012).In the 90s the
Indian government increased the approved FDI limit to 74% in 1997 allowing a
rush of foreign firms entering or re-entering the Indian pharmaceutical
industry.

The
changing extent, influence, and geography of MNE activity over the past two
decades is itself a reflection of a series of revolutionary technological,
economic and political events. But internationalization is not a “one size
fits all approach”, firms will always have different motives to go global and
do it in the way that best suits their business models. Whichever method a
company adopts, it will subsequently go through a sustained learning process and
increases its knowledge throughout the process. Internationalization and
globalisation has indeed become the need of the hour for companies to sustain
their businesses in the long run and develop company’s strategic and
organizational capabilities. That isn’t to say that becoming a MNE is always
the optimal outcome, as shown in examples above occasionally
internationalisation can be a firms largest downfall.

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